Planning Demand and Supply in a Supply Chain

第三單元(1) ：Planning Demand and Supply in a Supply Chain Planning Demand and Supply in a Supply Chain 郭瑞祥教授【本著作除另有註明外，採取創用CC「姓名標示－非商業性－相同方式分享」台灣3.0版授權釋出】 1

Outline • Part I: Aggregate planning • Part II: Managing predictable variability 2

Manage Predictable Variability • Predicable variability is change in demand that can be forecasted. • A firm must choose two broad options: • Manage supply (manage capacity and manage inventory) • Manage demand • Often companies divide the task • Marketing manages demand  maximize revenue • Operations manage supply  minimize cost • Separating the supply and demand decisions makes it difficult to coordinate the supply chain • Designing product flexibility • Lawn mower manufacturers also make snowblowers 3

Managing Predictable Variability- Managing Supply - • Managing capacity • Time flexibility from workforce • Use of seasonal workforce • Use of subcontracting • Use of dual facilities – dedicated and flexible • Designing product flexibility into the production processes • Managing inventory • Using common components across multiple products • Building inventory of high demand or predictable demand products 4

Managing Predictable Variability- Managing Demand - • Demand can be influenced using pricing and other forms of promotions. • Four key factors influence the timing of a trade promotion: • Impact of the promotion on demand • Product margins • Cost of holding inventory • Cost of changing capacity • Demand increase from promotion results from three factors: • Market growth • Stealing market share • Forward buying Microsoft Office 2010多媒體藝廊 5

Scenario 4: Aggregate Planning and Promotion at Red Tomato • Discounting a unit from $40 to $39 results in the period demand’s increasing by 10 percent because of increased consumption or substitution. Further, 20 percent of each of the two following months demand is moved forward. Microsoft Office 2010多媒體藝廊 • Consider the discount offering in off-peak month of January. The demand forecast is shown below: 6

Scenario 4: Aggregate Planning and Promotion at Red Tomato • Discounting a unit from $40 to $39 results in the period demand’s increasing by 10 percent because of increased consumption or substitution. Further, 20 percent of each of the two following months demand is moved forward. • Consider the discount offering in off-peak month of January. The demand forecast is shown below: 7

Optimal Aggregate Plan for Scenario 4 • Total cost over planning horizon = $421,915 • Revenue over planning horizon = $643,400 • Profit over planning horizon = $221,485 8

Conclusions based on Scenarios 1, 4 & 5 9

Scenario 5: Aggregate Planning and Promotion at Red Tomato • Discounting a unit from $40 to $39 results in the period demand’s increasing by 10 percent because of increased consumption or substitution. Further, 20 percent of each of the two following months demand is moved forward. • Consider the discount offering in peak month of April. The demand forecast is shown below: Microsoft Office 2010多媒體藝廊 Demand fluctuation has increased relative to the profile in scenario 1. 10

Scenario 5: Aggregate Planning and Promotion at Red Tomato • Discounting a unit from $40 to $39 results in the period demand’s increasing by 10 percent because of increased consumption or substitution. Further, 20 percent of each of the two following months demand is moved forward. • Consider the discount offering in peak month of April. The demand forecast is shown below: Demand fluctuation has increased relative to the profile in scenario 1. 11

Conclusions based on Scenarios 1, 4 & 5 • A price promotion in January (scenario 4) results in a higher profit than no promotion (scenario 1). A promotion in April (scenario 5) results in a lower profit than no promotion (scenario 1). • Even though revenues are higher when promotions is offered in April, the increase in operating costs makes it a less profitable option. • Red Tomato should offer the discount in the off-peak month of January. • The above conclusions could be different if Red Tomato were in a situation in which most of the demand increase comes from market growth or stealing market share rather than forward buying (see scenarios 6 & 7) • It is not appropriate for a firm to leave pricing decisions solely in the domain of marketing and aggregate planning solely in the domain of operations. It is crucial that forecasts, pricing, and aggregate planning be coordinated in the supply chain. 14

Scenario 7: Aggregate Planning and Promotion at Red Tomato • Discounting a unit from $40 to $39 results in the period demand’s increasing by 100 percent because of increased consumption or substitution. Further, 20 percent of each of the two following months demand is moved forward. • Consider the discount offering in peak month of April. The demand forecast is shown below: Demand fluctuation has increased relative to the profile in scenario 1. 19

Optimal Aggregate Plan for Scenario 7 • Total cost over planning horizon = $536,200 • Revenue over planning horizon = $783,520 • Profit over planning horizon = $247,320 • When forward buying is a small part of the increase in demand from discounting, Red Tomato should offer the discount in the peak demand month of April. 20

Performance Under Different Scenarios 1 4 5 6 7 22

Conclusions Regarding Promotions • Pricing and aggregate planning must be done jointly. • Average inventory increases if a promotion is run during the peak period and decreases if run during off-peak period. • Promotion during the peak period may decrease overall profitability if a significant fraction of the demand increase results from a forward buy. • Promotion during the peak period may increase overall profitability if forward buying becomes a smaller fraction of the demand increase. • As product margin declines, promotion during the peak period becomes less profitable. 23

Summary of Impact on Promotion Timing 24

Planning Demand and Supply in a Supply Chain